Global stocks posted their first weekly loss since October, government bond prices fell and the dollar rose, as unexpectedly strong US jobs data prompted traders to abandon bets on a quick cut in interest rates next year.
MSCI’s broad index of world stocks was flat on Friday, falling 0.1% this week after five weeks of gains.
US employers added 200,000 new workers in November, the nonfarm payrolls report showed on Friday, beating expectations for 180,000 new jobs and dashing hopes that the Federal Reserve will turn more dovish at its rate-setting meeting next week.
The 10-year Treasury yield, which rises when the price of benchmark debt securities falls and tracks expectations for longer-term borrowing costs, rose 13 basis points on the day, to 4.129%, after Friday’s employment data.
The Fed has raised its key lending rate by more than 5 percentage points since March 2022. With inflation still above its 2% target and fueled by a tight labor market and rising wages, Fed Chair Jerome Powell said the central bank is ready to tighten monetary policy again. Others if necessary.
“If the Fed cuts aggressively, it will be because of a recession and a marked decline in inflation, driven by unemployment,” Fed Chairman Bob Savage said. “The non-farm payrolls numbers suggest we are still a long way from these levels.” Market Strategy and Insights at BNY Mellon.
Futures indicated the US S&P 500 index would be flat in early trading in New York. Contracts tracking the Nasdaq 100, an index sensitive to concerns that financing costs for growing companies will remain high or rise, fell 0.4%.
Complacency
Global markets had been anticipating interest rate cuts by central banks as early as March next year, even as economic forecasters do not expect a major recession in the United States or the euro zone.
The S&P 500 has risen more than 9% since the beginning of November. The 10-year Treasury yield, which moves inversely with the benchmark debt rate and tracks expectations for longer-term borrowing costs, has fallen from more than 5% in late October.
“There is a lot of complacency in the market at the moment,” said Olivier Marchiot, multi-asset portfolio manager at fund manager Unigestion. “There cannot be a consensus calling for a soft landing while, at the same time, investors are anticipating significant cuts.”
The VIX, a measure of implied volatility in the S&P 500 that reflects investors’ anxiety about stock market corrections, is trading at 12.8, near its lowest levels since before the COVID-19 shock in early 2020.
The dollar stopped
The dollar index rose in the latest trading by 0.4% to 104.13, after the non-farm payrolls report. The euro, which was on track for a weekly decline of more than 1% this week, was trading at $1.077.
The Japanese yen fell 0.6 percent to 144.96 yen. This came after the yen rose more than 2% on Thursday, when Bank of Japan Governor Kazuo Ueda predicted a “more challenging” year for managing inflation, which traders interpreted as a signal that the Bank of Japan may end negative interest rates early next year. The Bank of Japan is scheduled to set its next monetary policy on December 19.
Elsewhere, Brent crude, which hit a six-month low on Thursday on concerns about slowing demand, rose 2.3% to $75.74 a barrel on Friday.
Gold, after hitting an all-time high earlier in the week before pulling back, fell 0.4% on Friday to $2,020 an ounce.
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